Laying Off Workers Doesn’t Have to Be Painful. These German Companies Show How to Do It More Humanely.
It's no secret that large companies struggle at times to treat their employees humanely. Many businesses, especially one of my favorite punching bags, General Motors, still opt for a traditionally heartless approach to layoffs.
Other companies have found slightly more generous approaches -- recently Ford showed a little kindness by actually giving employees a few days to pack up their things and say goodbye to co-workers -- but we should still be able to do better than that.
Jamie Dimon, CEO of JPMorgan Chase, along with other top CEOs, seems to agree. They recently expressed their belief that companies have a real responsibility tostakeholders like customers and employees. Dimon and the others said, in an ad they took out in The New York Times, that businesses can't focus solely on shareholders. The regular working stiff matters too.
That's where a recent WSJ report provided a little hope. It turns out that several large German companies are putting their money where their mouths are. They're enacting entirely different, more socially responsible approaches as they face economic turbulence or stagnant revenue. Here are some of those approaches, which American companies can learn a thing or two from.
"Work-Time Accounts" and Early Retirement
Diesel components giant Bosch is one of the better examples of companies trying more humane approaches to downsizing.
The company directly negotiated with labor representatives (a much more common practice in Germany) to come to agreements on cutting staff. They decided to use something called "work-time accounts," which aren't that well known in the U.S. Essentially, with these accounts, employees stock up on overtime pay when times are good, and can then access that money when their hours get cut during a downturn.
Bosch also hired fewer temporary workers and used severance programs and early retirement offers to shrink their workforce.
One of the aspects of this strategy that feels more sustainable to me is that by avoiding drastic cuts, companies like Bosch don't have to suddenly hire a bunch of new people who need training when the market bounces back. The approach helps companies maintain a better balance between workforce costs and revenue while continuing to give workers some type of paycheck. It's more stable for everyone involved.
Then, there's Volkswagen. Company executives saw financial trouble and announced more than 20,000 layoffs. But they avoided any "forced layoffs."
The German car company started retooling three plants so that it would need fewer workers. The reduction plan includes not replacing certain administrative and factory positions over the next five years. As the Baby Boomer workers that occupy those jobs near retirement, Volkswagen will provide early retirement packages and remove those positions.
The factory retooling also involves ramping up electric vehicle production. This again feels more sustainable than other companies' approaches. Volkswagen is cutting the workforce more slowly while also addressing changing vehicle market demands, all in one plan.
Bayer is handling the need to reduce its workforce in a way similar to Volkswagen's. The German pharmaceutical giant is offering generous buyout packages that include up to five years of severance pay.
This gives Bayer more control over workforce reductions. Plus, it can reduce confrontations between management and workforce that lead to strikes. Although the severance packages are expensive, they tend to be a better deal than the expenses involved in dealing with those lengthy labor strikes.
Lessons for American Entrepreneurs
Part of why these German companies are seeking more humane solutions is rooted in German legal history. The country's labor law states that the supervisory board of any company with more than 2,000 employees has to be made up of half shareholders and half labor representatives. The approach balances employee interests with those of shareholders.
American law doesn't require companies to take worker needs into consideration this extensively. And you can make the case this causes more harm than good. Investors might be more inclined to put their trust in companies that avoid making large-scale, herky-jerky layoffs. Those equal instability, not only for the company but for thousands of former workers, as well as the regions they're from.
It's inherently smarter to lay off people more strategically. Many of your workers may be interested in early retirement or some kind of special severance package. Why not take advantage of that? It should be an attractive option to many entrepreneurs, especially those with the foresight to know that if they lay off too many people they'll just have to train new workers and lose organizational knowledge should the economic climate improve (and then go south again).
These socially responsible best practices may be especially critical with signs and predictions of a looming recessionary period. Hopefully, more American entrepreneurs realize this and make changes that will help their businesses and the economy overall.